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Settlement panel: To be or not to be
April, 03rd 2007
Governments endeavour to achieve fiscal consolidation through revenue-led fiscal policy is hinged on its ability to counter tax evasion. Consecutive government task forces have concentrated their efforts on achieving this laudable objective, though progress has fallen short of expectations. 
The Wanchoo Committee, while recommending creation of the Settlement Commission body, observed, The door for compromise with an errant taxpayer should not remain closed. In the administration of fiscal laws, there should be room for compromise and settlement. A rigid attitude would not only inhibit a one time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigation resources of the department in cases of doubtful benefit to revenue while needlessly proliferating litigation and holding up collections. 
On the basis of the expert task force recommendations, The Income Tax Settlement Commission was set up on April 1, 1976. It is a quasi judicial body comprising of individuals of integrity and outstanding ability, having special knowledge and experience in dealing with problems relating to direct taxes and for settling tax disputes in complicated cases to avoid protracted litigation. 
The Commission consists of a National Chairman, four jurisdictional Vice-Chairman(s) and two other Members for each Bench. Over the years, the Commissions significance and objectives have died, given the outcome. With a view to streamline the proceedings before the Settlement Commission, several changes are proposed in Finance Bill, 2007. 
Presently, any taxpayer can approach the Settlement Commission at any stage of assessment and reassessment proceedings before any income-tax authority, including in a search and seizure scenario, thereby giving a broad mandate. The result was that the Settlement Commission continued to be predominantly burdened with search and seizure cases besides several unsettled cases. It is proposed that only those cases that are pending with the assessing officer can be placed before the Commission, thereby curtailing its role in the first place. 
Under the current regime, the monetary limit of Rs 1 lakh towards additional tax for settlement is proposed to be increased threefold. Further, the additional tax amount has to be paid before making an application and the complexity of the investigation involved will not be a criterion for admitting/rejecting an application. This in a way takes away the judgmental view of the Commission to accept or reject a case. 
The most significant change in the new regulations is with respect to the procedure to be followed by the Commission on receiving an application. Though, under the current regime, the Commission is expected to pass an order within one year of receiving the application, practical experience suggests that several cases for settlement have been piling for years without resolution. The proposed regulation with a laudable intent imposes an obligation on the Commission to pass the order within nine months of filing the application. The catch being, that if for any reason, including no fault of the applicant, the Commission fails to meet the nine-month deadline, the application abates. 
In case of abatement, the revenue officers can make use of the information to frame an assessment order. I cant imagine the assessing officer to be lenient, leave alone being sympathetic towards the taxpayers need. Hence, it seems that the proposed change possibly takes away the independence from the Commission, particularly since the applicant has to send a copy of the settlement petition to the assessing officer. 
The Settlement Commission had unfettered powers to grant immunity from prosecution for any offence under the Income-tax Act, Indian Penal Code and any other Central Act in force. For instance, immunity from prosecution by the Commission would mean immunity under exchange control laws. The Commission had power to grant such immunity subject to conditions as it fit to impose. The Bill, however, proposes to curtail the powers to grant immunity from prosecution only under the Income tax and Wealth tax Acts, for applications filed after May 31, 2007. Whereas this seems to be a logical step, the question in the mind of the taxpayer would be, how he seeks immunity under other laws and how encouraged and enthused he would be for a settlement. 
It has also been proposed that the Settlement Commission can be approached by the taxpayer once in a lifetime such that it is not viewed as a permanent amnesty. The idea is to debar a habitual defaulter from re-approaching the Settlement Commission. 
Mukesh Butani
(The author is a Partner with BMR & Associates and views are personal)
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